Newspaper article The Evening Standard (London, England)

A Bumpy Road for the Chancellor

Newspaper article The Evening Standard (London, England)

A Bumpy Road for the Chancellor

Article excerpt

THIS week's turbulent trading sessions in stock and metals markets have a wider significance.

The volatility of share prices has reached its worst, by one measure, for three years. Many of the people paid to manage our money seem to think the economic outlook is darkening. Should we worry?

The markets seem to be acknowledging that future growth will be held back by central bankers' fears of inflation. It now appears that American interest rates have not yet peaked. Governor of the Bank of England Mervyn King's unusual criticism of the policies of former US Federal Reserve chief Alan Greenspan suggests a growing realisation by monetary policy makers that the cheap money and easy credit of the past three years may have gone too far.

Meanwhile, the US budget and trade deficits still yawn wide - and so do Britain's.

If the result is higher interest rates, they would be particularly bad for the Chancellor. Gordon Brown has enjoyed a long, exceptional period of falling inflation and interest rates, even before the benign conditions of the past three years. Broadly favourable international economic trends have seen him through the fallout from the end of the dotcom bubble and high oil prices.

However, it is not only a reversal in these trends that could undermine his reputation. The dragging effect of his tax increases on private-sector investment and competitiveness will not help. Neither will the end of his public-sector spending boom, as the extra spending dries up from next year.

Unemployment is rising again, while far too little has been done about the hidden unemployment caused by poor skills and disincentives to work.

As Mr King says, for the world economy, the road ahead looks bumpier. Mr Brown must now work out how to explain that acceptably to voters - especially if he wants his reputation for sound economic management to survive an increasingly fraught move to 10 Downing Street.

Falconer's defence THE Lord Chancellor, Lord Falconer, has rallied to the defence of the judges. Against the Home Secretary's swingeing criticisms about over-lenient sentencing, specifically in the case of the convicted paedophile Craig Sweeney, he responds robustly that: "The problem is not the judges, the problem is the system. …

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